Johnstech International Corp. v. JF Microtechnology SDN BHD

          ORDER RE SANCTIONS AND SUMMARY JUDGMENT ON COUNTERCLAIMS RE: DKT. NOS. 113-12, 141

          JAMES DONATO United States District Judge

         BACKGROUND

         This order resolves the motion for summary judgment by plaintiff Johnstech International Corporation (“Johnstech”) on counterclaims by defendant JF Microtechnology SDN BHD (“JFM”) in this patent suit. Dkt. Nos. 113-12 (under seal), 128 (redacted). It also resolves a related sanctions motion brought by Johnstech. Dkt. No. 141. Summary judgment is granted on the challenged claims and an evidentiary sanction is imposed against JFM.

         JFM brought five counterclaims in response to Johnstech’s patent suit. Dkt. No. 70. The first counterclaim seeks declaratory judgment of invalidity and noninfringement of the patent in suit, and is not in issue here. The summary judgment motion deals only with the second through fifth counterclaims, which arise out an August 2014 letter that Johnstech sent “to multiple current and prospective customers of JFM” a few months after this litigation began. Id. at 7. The counterclaims challenge three statements in the letter:

[1.] [O]ur R&D efforts have been granted several hundred patents[;]

[2.] Patents . . . protect buyers from being victimized by low-quality copies or exposed to substantial legal liabilities[;]

[3.] We were further dismayed to read language in the JF Technology Terms and Conditions of Sale that the purchaser of their products indemnifies JF Technology against possible patent infringement litigation!

See Dkt. No. 70 at 7-8; see also Dkt. No. 70-1.

         JFM contends that these statements amount to defamation, false advertising under the Lanham Act (15 U.S.C. § 1125), unfair business practices under California Bus. & Prof. Code § 17200, and intentional interference with prospective economic advantage. Johnstech moves for summary judgment on JFM’s second through fifth counterclaims on merits grounds particular to each claim, on immunity under the Noerr-Pennington doctrine, and for lack of damages evidence. Dkt. Nos. 113-12, 128.

         DISCUSSION

         I. SANCTIONS MOTION

         JFM did not spell out the amount or basis of its purported damages for the counterclaims until it gave Johnstech a report by a retained certified public accountant, James Pampinella, after the close of fact discovery. Dkt. No. 113-12 at 14; Dkt. No. 113-17. This timing raises two serious concerns. JFM should have made, early in the case, an initial disclosure with a “computation of each category of damages” along with the “documents or other evidentiary material” on which the computations were based, and other “materials bearing on the nature and extent of injuries suffered.” Fed.R.Civ.P. 26(a)(1)(A)(iii). While the courts have declined to take a rigid approach to the specificity required for initial disclosures about damages, it has been abundantly clear for some time that at least some facts and figures, however tentative, need to be provided; simply saying “you owe me” is not enough. See, e.g., City and County of San Francisco v. Tutor-Saliba Corp., 218 F.R.D. 219, 221 (N.D. Cal. 2003). And yet, all JFM said in its initial disclosures for damages was just that. Even as late as its final supplemental disclosures, which it served just before the close of discovery, JFM’s “computations” of special damages consisted of nothing more than cursory and unadorned statements like “[a]ll monies lost . . . as a result of business lost by JF Microtechnology as the result of the false letter” and “[a]ll profits earned as a result of the unlawful diversion of business” from JFM to Johnstech. Dkt. No. 142-2 at 7. The “computation” for general damages managed to be even less informative: “[m]onies to compensate” for “shame, mortification and hurt feelings resulting from the false letter.” Id. Needless to say, JFM did not provide or even identify any evidence or documentation in support of these hazy generalizations.

         In effect, JFM never disclosed at any time in the litigation a useful valuation of its counterclaim damages as Rule 26(a) requires. That is an unacceptable default. The federal rules treat initial disclosures as automatic and time-sensitive. This Court’s Standing Order for Civil Cases, which governs this litigation, expressly incorporates these requirements. The sanction for failing to adhere to Rule 26(a) is exclusion of improperly disclosed evidence and materials. Specifically, Rule 37 provides a “self-executing, automatic sanction” of exclusion “to provide a strong inducement for disclosure of material.” Hoffman v. Constr. Protective Servs., Inc., 541 F.3d 1175, 1180 (9th Cir. 2008) (internal citation omitted). Exclusion is appropriate “unless the failure to disclose was substantially justified or harmless.” Id. at 1179 (citation omitted). Bad faith or willfulness is not a required finding and the exclusion sanction will apply “even when a litigant’s entire cause of action” will be precluded. Id. at 1180 (internal quotation omitted).

         A fairly compelling case can be made to strike JFM’s counterclaim damages on Rule 26(a) grounds alone. But JFM has dug itself an even deeper hole. When it finally specified its alleged damages, JFM relied on evidence that it had failed to provide in discovery. As Johnstech points out, all of JFM’s damages demands flow exclusively from overseas sales data that JFM had withheld despite being called for in a fair reading of Johnstech’s discovery requests. This problem surfaced during a hearing on another issue, and the ...